Outsourcing Justice

Seventh Circuit Opinion Shows Pitfalls With Online Arbitration Clauses

In a must-read decision for anyone creating an arbitration clause online in connection with internet commerce, the Seventh Circuit recently found that a website failed to give reasonable notice of contract terms, and as a result, the arbitration clause was not enforceable.  Sgouros v. TransUnion Corp., No. 15-1371 (7th Cir. Mar. 25, 2016) (click here for a copy of the decision, which contains images of the website).

The plaintiff consumer had purchased a credit score from TransUnion’s website.  To finalize the transaction, the plaintiff had to complete 3 different steps or screens on the website.  On screen or step #2, there was a scroll box showing only a tiny snippet (the first 3 lines) of a 10-page service agreement with TransUnion, and the arbitration agreement was buried on page 8 of this 10 page document.  In order to see the full agreement, a user could scroll down the box to access the full text of the agreement.  Immediately under the scroll box was a button “I accept and continue to step 3,” along with a disclosure that by clicking the button, the user was authorizing TransUnion to obtain the necessary information to confirm the user’s identity and display the user’s credit data.

The Seventh Circuit faulted TransUnion for this disclosure next to the “I accept” button.  The disclosure failed to state that by clicking the button the user was agreeing to the terms in the service agreement.  Instead, the disclosure misleadingly stated that clicking the button provided authority for TransUnion to verify the user’s identity, as opposed to acceptance of the terms of the agreement.  The Seventh Circuit believed this disclosure was defective, distracting, and misleading.  There should have been a clear prompt or warning directing the user to read the service agreement, or the “I accept” button should have contained a stronger disclosure that by clicking, a user is agreeing to all the terms of the service agreement.

I imagine that when creating an e-commerce website, web designers and business people probably want to make the process as simple as possible so that customers continue the process and complete the transaction.  However, this desire to simplify can lead to problems with the enforceability of an online arbitration clause, as demonstrated by this Seventh Circuit opinion.

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